Show the derivation of the foreign trade multiplier and calculate the foreign trade multiplier in an economy with a consumption function of C = 60 + 0.4Y and an import function of M = M0 + 0.2Y?
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Show the derivation of the foreign trade multiplier and calculate the foreign trade multiplier in an economy with a consumption function of C = 60 + 0.4Y and an import function of M = M0 + 0.2Y?
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- Consider a small country that is closed to trade, so its net exports are equal to zero. The following equations describe the economy of this country in billions of dollars, where C is consumption, DI is disposable income, I is investment, and G is government purchases: C� = = 30+0.8×DI30+0.8×DI G� = = 5050 I� = = 6060 Initially, this economy had a lump sum tax. Suppose net taxes were $50 billion, so that disposable income was equal to Y – 50, where Y is real GDP. In this case, this economy's aggregate output demanded was ___________ . Suppose the government decides to increase spending by $10 billion without raising taxes. Because the spending multiplier is ____________ , this will increase the economy's aggregate output demanded by ____________ . Now suppose that the government switches to a proportional tax on income of 10%. Because consumers retain the remaining 90% of their income, disposable income is now equal to 0.90Y. In this case, the economy's aggregate output…Consider a small economy that is closed to trade, so that its net exports are zero. Suppose that the economy has the following consumption function, where C is consumption, Y is income (real GDP), IP is planned investment, G is government purchases, and T is taxes:C = $40 billion+0.5×(Y – T) Suppose G=$115 billion, IP=$50 billion, and T=$10 billion.Given the consumption function and the fact that, in a closed economy, planned expenditure can be calculated as Y=C+IP+G , the equilibrium income level is$ billion.Suppose that government purchases are increased by $100 billion. The new equilibrium level of income will be equal to$ billion.Based on the effect of the change in government purchases on equilibrium income, you can tell that this economy's multiplier is equal to_________?consider that there is a decrease in the investment demand. Analyze and graph its effects on: 1- Exports. 2- Capital transfers.
- Consider the imaginary small country of Kootenay. Assume that Kootenay is closed to trade, so that its net exports are equal to zero. Suppose that the economy is described by the following consumption function, where C is consumption, Y is income (real GDP), IP is planned investment, G is government purchases, and T is taxes: C = $40 billion+0.5×(Y – T) Suppose G=$115 billion, IP=$50 billion, and T=$10 billion. Given the consumption function and the fact that, in a closed economy, planned expenditure can be calculated as Y=C+IP+G, the equilibrium income level is billion. Suppose that government purchases are increased by $100 billion. The new equilibrium level of income will be equal to billion. Based on the effect of the change in government purchases on equilibrium income, you can tell that this economy's multiplier is equal toProve the foreign investment multiplier is equal to 1 all over mpm + mps (1/mpm+mps)Create an example (make up your own numbers) for a virtual open economy with import as a function of total income. Find the equilibrium output level and the open economy multiplier.
- A reduction in the marginal propensity to import will cause A) the multiplier to increase and a given change in government spending (G) to have a larger effect on domestic output. B) the multiplier to increase and a given change in government spending (G) to have a smaller effect on domestic output. C) the multiplier to decrease and a given change in government spending (G) to have a larger effect on domestic output. D) the multiplier to decrease and a given change in government spending (G) to have a smaller effect on domestic output.Which of the following statements accurately describes the crowding out effect? a. For a given country, assuming no change in trade balances and private savings, an increase in government borrowing would lead to a reduction in private investment. b.For a given country, assuming no change in trade balances and private savings, an increase in government borrowing would lead to an increase in private investment. c. For a given country, assuming no change in trade balances and private savings, an increase in government borrowing would lead to a reduction in private savings. d. For a given country, assuming an increase in trade deficit, an increase in government borrowing would lead to a reduction in private savings.Assuming the Marshall-Lerner condition holds and using the ZZ/Y and NX graphs, illustrate graphically and explain what effect a real appreciation of the domestic currency will have on output and net exports. Clearly label all curves and explain the dynamics from the initial to the final equilibrium point
- Opening the economy to trade tends to increase the multiplier because an increase in expenditure leads to more exports. Please explain. True or FalseGiven the following variables in the open economy aggregate expenditure model, autonomous consumption (C0) = 200, autonomous investment (I0) = 200, government spending (G0) = 100, export spending (X0) = 100, autonomous import spending (M0) = 100, taxes (TP) = 0, marginalpropensity to consume (c1) = 0.8, marginal propensity to invest (i1) = 0.1, and marginal propensity to import (m1) = 0.15, a. Compared with the original equilibrium in part a, if the government decides to impose taxes (TP) of 100, calculate the new equilibrium level of income. b. Find the value of the multiplier and the corresponding equilibrium income if tax is specified as ?? = 100 + 0.1?. Hint: Remember that consumption has an autonomous component and is a function of disposable income, Yd, where Yd = Y – TPGiven the following variables in the open economy aggregate expenditure model, autonomous consumption (C0) = 200, autonomous investment (I0) = 200, government spending (G0) = 100, export spending (X0) = 100, autonomous import spending (M0) = 100, taxes (TP) = 0, marginal propensity to consume (c1) = 0.8, marginal propensity to invest (i1) = 0.1, and marginal propensity to import (m1) = 0.15, a. Calculate the equilibrium level of income for the open economy aggregate expenditure model. b. Determine the value of the open economy expenditure multiplier. c. If there is an increase in autonomous import expenditure from 100 to 200 resulting from an increase in the currency exchange rate, calculate the new equilibrium level of income and the value of the multiplier. d. Compared with the original equilibrium in part a, if the government decides to impose taxes (TP) of 100, calculate the new equilibrium level of income. e. Find the value of the multiplier and the corresponding equilibrium…